Abbey National has stepped up its trade battle against the 'big four' UK banks, offering higher current account interest and lower overdraft charges in a bid to attract customers.

Abbey is to offer current account customers paying in more than �1,000 a month the choice of a cut in overdraft fees, from 9.9% to 8.7%, or a higher interest rate, raised from 0.1% to 3.0%.

The move is part of an ongoing battle to weaken the grip of the big four - Lloyds TSB, Barclays, HSBC, and Royal Bank of Scotland - on the UK banking market, Abbey said.

It comes a day after Bank of Scotland, part of fifth ranking HBOS, announced a current account interest rate of 2.0%.

Abbey last month revealed it was to pay interest on accounts held by small firms, in an effort to break into a market where the big four's stranglehold has attracted particular concerns.

Jobs created

Abbey said the current account shake-up, which will create 500 jobs at its customer service centres in Manchester, Bradford and Sheffield, would cost it �25m this year.

But analysts nonetheless warmed to the move, aimed at increasing the number of Abbey National current account holders by one million to four million.

"Clearly the initiative should help Abbey at the margin to attract a higher share of new current accounts, but we do not expect it to have a noticeable impact on the group's earnings outlook," analysts at investment bank ABN Amro said.

Martin Cross, banking analyst at Teather & Greenwood, restated his "buy" recommendation on Abbey shares.

Abbey National stock stood 17p higher at 1000.5p in lunchtime trade in London.